The formula
Amount financed = loan + initiation fee (if added to the loan) Instalment = financed × r ÷ (1 − (1 + r)^−n) + monthly service fee Total cost of credit = total repaid − amount borrowed
Credit life insurance is often added to personal loans. Ask for the monthly premium on your quote and add it to the instalment when comparing lenders.
Worked examples
R50 000 over 36 months at 24%
Before fees, the instalment is about R1 962 a month and you repay roughly R70 600 in total.
Breakdown
- Amount you receive
- R50 000.00
- Amount financed
- R50 000.00
- Total interest
- R20 619.13
- Total fees (initiation + service)
- R0.00
- Total cost of credit
- R20 619.13
The same loan with fees from a quote
Adding a capitalised initiation fee and a monthly service fee increases the true cost of the loan noticeably.
Breakdown
- Amount you receive
- R50 000.00
- Amount financed
- R51 000.00
- Total interest
- R21 031.52
- Total fees (initiation + service)
- R3 160.00
- Total cost of credit
- R24 191.52
Frequently asked questions
What is the total cost of credit?
Everything you repay above the amount you borrowed — interest, the initiation fee, monthly service fees and (where applicable) credit life insurance. It is the best number for comparing loan quotes.
Is there a limit on personal loan interest rates?
Yes. The National Credit Act caps the interest rates, initiation fees and service fees lenders may charge, linked to the repo rate for interest. Your lender must give you a pre-agreement quote.
Should I take a longer term for a lower instalment?
A longer term lowers the instalment but increases the total interest and fees. Choose the shortest term you can comfortably afford.